What is a Transition Lease?

Distinguishing Transition Leases Under the New Accounting Standards; ASC 842, IFRS 16, GASB 87

Note: A Transition Lease is any lease with a Commencement Date before the Initial Application Date. The Initial Application Date could be either the beginning of the fiscal period in which the new lease standard was adopted or the beginning of the current fiscal period when transitioning from another lease accounting solution.

Example:

Lease commencement date: March 1, 2015

Initial Application Date of new accounting standard: January 1, 2022

Transition Lease Start Date in LeaseCrunch

When entering a transition lease into LeaseCrunch software, the start date of the transition lease is entered as the same day as the Initial Application Date. The start date is populated on Step 1 of 'Add Leases' or on the Bulk Import Template.

When the start date of a lease matches the Initial Application Date of the corresponding reporting entity, the software prohibits entry of initial Lease Incentives and Initial Direct Costs and routes entry to 'Existing Balances under Previous Lease Guidance'. Existing Balances are those balances in place on the balance sheet as of the Initial Application Date and entered as a positive number.

Journal Entries & Existing Balances

The Journal Entry report generates the initial recognition of the ROU Asset and Lease Liability. If existing balances are input in Step 2 of lease entry, the report provides entries to clear out previous balances. Existing balances flow through the ROU Asset in the initial recognition.

ASC 842: Operating Leases

When transitioning Operating Leases to the new standard, it is likely there is a balance on the Balance Sheet, such as Deferred Rent. Enter these these balances as a positive number on step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the ROU Asset.

ASC 842: Finance Leases

When transitioning Finance Leases to the new standard, it is likely there are balances on the balance sheet such as Capital Lease Asset, Accumulated Depreciation or Capital Lease Liability. Enter these these balances as a positive number on step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the ROU Asset.

GASB 87: Leases

When transitioning Leases to the new standard, it is likely there are balances on the Balance sheet such as Deferred Rent or Prepaid Rent. Enter these these balances as a positive number on step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the Lease Asset.

Note: All GL Accounts for Existing Balances under Previous Lease Guidance can be adjusted under Administration - GL Accounts